BY OPALYN MOK
NOVEMBER 13, 2013
|Rehda Penang chairman Datuk Jerry Chan said GST will increase the |
cost of living and property prices. — Picture by K.E. Ooi
GEORGE TOWN, Nov 13 — House prices will surge once the Goods and Services Tax (GST) is implemented in 2015, property experts have said in a reminder to prospective homebuyers that although housing is GST-exempt, construction materials are subjected to the controversial consumption tax.
This will add further to the burden of rising living costs and a spike in inflation rates, they said, singling out lower-income earners as the group most likely to get the short end of the stick once the GST is put in place.
Real Estate and Housing Developers Association (Rehda) Penang branch chairman Datuk Jerry Chan said the impact of the yet-to-be implemented GST could even be felt now, due to general fear and anticipation.
“For sure the costs of living are going up and inflation is coming in but inflation is good for the property market,” he said.
A surge in inflation, he added, would also mean that prices of properties would increase.
“In time to come, property prices in the low medium end will continue to go up,” he said during the post-budget dialogue session with real estate agent, Henry Butcher, Hong Leong Bank and chartered accounting firm KPMG.
Agreeing, KPMG partner Ooi Kok Seng explained that although housing is GST-exempt, developers would still have to be charged the consumption tax for the purchase of building materials to construct the homes.
“We can’t run away from the implications of the GST,” he reasoned. “The magnitude of the impact to the property prices because of GST is serious, but it depends on how they manage their property taxes.”
“This is because developers will have to pay for the input tax (GST on materials for construction) but they can’t claim output tax as GST is not imposed on properties,” he said.
Both Chan and Ooi agreed that those in the lower income group would suffer greatly under the new tax system.
“They will suffer the impact more than the rich as even the handouts such as BR1M does not benefit all,” Chan said, referring to the Bantuan Rakyat 1 Malaysia cash handout.
During the tabling of Budget 2014 last month, Prime Minister Datuk Seri Najib Razak had announced that the GST would be implemented at 6 per cent starting in 2015, and that the consumption tax would replace the narrower sales and service tax of 16 per cent.
To cushion the blow of the GST and subsidy cuts, Najib also introduced other measures such as lowering income tax by 1 to 3 percentage points and increasing its cash handouts under the BR1M programme from RM500 to RM650 for households earning below RM3,000 monthly.
It also lowered the bar for entry to now include families earning up to RM4,000 a month, albeit at a lower payout of RM450. Unmarried individuals earning below RM2,000 will also receive RM300 each, up from RM250 previously.
But Ooi said today this would make little difference to those in the lower income bracket.
“Those earning less than RM3,000 per month don’t normally have to pay income tax but with GST, it means they now have to pay taxes for items such as clothing,” he pointed out.
|KPMG partner Ooi Kok Seng said GST will have a significant |
effect on the poor. — Picture by K.E. Ooi
Meanwhile, noting the top tier tax bracket of 26 per cent has been increased from RM100,000 to RM400,000, Ooi said this could translate up to RM7,200 in tax savings for those earning below RM400,000.
“This means they can spend up to RM120,000 per year on goods with GST and they won’t feel the pinch at all but it is not the same for the lower income group as they will now have to pay taxes through GST,” he said during the dialogue session.
But in the long term, however, Ooi admitted that the GST, along with the removal of subsidies, could be good for the country, provided the measures are implemented well and there are no leakages.
“Without subsidies, it would mean a free economy for the country which translates to higher income for Malaysians,” he said.
He believed that with GST, removal of subsidies, costs of living will increase and this will translate into the income levels moving up the value chain.
“Previously, with subsidies, there was no need for increase in salary as costs of living was lower but when the subsidies are removed, costs go up, naturally our income has to increase too,” he said.
For example, he pointed out that the professional fees for architects, surveyors, engineers and accountants in Malaysia are the lowest in this region.
“Even our GST is lowest in this region so in the long run, it will be good for the country provided that the leakages are looked into,” he said.